Feast in time of plague: the main result of 2020

2020 was an economic disaster, if not a catastrophe, as the global economy plunged into one of the worst recessions in history. Entire sectors of the economy, albeit temporarily, have practically ceased to exist: air travel, tourism, physical retail, restaurant business, etc.

And against the background of all this, the US stock market (case of the Nasdaq Index) ends the year with growth by 100% (!), if we take the March lows as a mark, or by almost 50% if we take the start of the year. It looks somehow irrational. But there really is logic. Trillions to save the global economy and ultra-low interest rates have fueled the insatiable appetites of avid investors.

Only the Central Banks of the USA, Europe and Japan have poured about $ 8 trillion. But there are other central banks and also governments. As a result, about $ 21 trillion was injected to save the world economy.

Obviously, without these injections, the crisis would have been even larger and more destructive. But the cost of this salvation is too high. This is not only about the swollen balance sheets of central banks and a sharp increase in budget deficits and government debts, but also about the fact that a significant part of the aid went not to the real sector, but to financial markets.

As a result, we have Bitcoin at 27K (while at the start of the year traders did not give it even 5K, and the funniest thing is that the January’s BitCoin as an asset does not differ from the December one), the Nasdaq Index is near 13K, copper at eight-year highs, and we are not speaking about Tesla, Nio and others like them.

It would seem that if against the background of a record economic decline, the stock market was growing, then in 2021, with the economic recovery, it is even more doomed to growth. But if we recall the basis of the current growth, the conclusion does not seem so clear. Why? Because the Governments and Central Banks have already put all the cards on the table and even shook a few jokers out of their sleeves. There is practically nowhere to cut rates further or to expand quantitative easing programs, as well as to endlessly and uncontrollably increase budget deficits.

The feast is over. And 2021 will be the year of the hangover. When it will be necessary to clean up the rubble: deal with public debt, budget deficits, central bank balance sheets, etc. That is, we have every chance of getting the reverse process, when money injections will be replaced by their withdrawal with all the consequences for overpriced markets.